What is the story about?
What's Happening?
A report by Kite Consulting highlights the shifting dynamics in the UK dairy market, emphasizing the need for retailers to pay more to secure milk supplies. The report notes that power is increasingly shifting towards farmers and processors due to tight global supply and record UK milk production. Despite strong milk volumes, UK farmgate prices have consistently lagged behind EU counterparts, averaging 2.3p per litre less over the past 19 years compared to Denmark. The report warns that UK retailers could be outcompeted by global buyers who pay more and expect less, urging them to redefine relationships with processors and farmers to ensure supply security.
Why It's Important?
The report underscores the growing competitiveness of the global dairy market, which could impact UK retailers if they fail to adapt. As processors invest in export capabilities, UK milk is increasingly tied to global markets where premium-added products command higher returns. Retailers demanding higher standards must be prepared to pay a premium, or risk losing out to international buyers. This shift could lead to increased prices for consumers and necessitate changes in retail strategies to maintain supply and meet sustainability and welfare standards.
What's Next?
Retailers have a short-term opportunity to secure milk supplies by revisiting contract terms and improving pricing structures. The report suggests offering incentives for sustainability and supply consistency to avoid being outcompeted. As new processing facilities come online, the market is expected to become more supplier-led, requiring retailers to adapt quickly to maintain their position.
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